The great Australian tax reset

WHY INVESTORS ARE TAKING A FRESH LOOK AT NEW ZEALAND REAL ESTATE

For decades, Australian property investors have benefited from one of the world's most generous tax environments.

Negative gearing has allowed investors to offset rental losses against their taxable income, while a 50 per cent capital gains tax (CGT) discount has rewarded long-term ownership. Combined with strong population growth and rising property values, the system has helped fuel one of Australia's most active residential investment markets.

Now, that equation is changing.

The Australian Government has introduced the most significant overhaul of property investment taxation in a generation, with reforms designed to improve housing affordability and encourage the construction of new homes. The changes include restricting negative gearing to newly built properties, reducing the capital gains tax discount, and extending the ban on foreign buyers purchasing established homes until mid-2029.

While the reforms are aimed squarely at Australia's housing market, their influence is already being felt across the Tasman.

As investors reassess where and how they deploy capital, New Zealand is increasingly appearing on the radar, with Bayleys already seeing stronger enquiry from Australian-based buyers, although industry experts say the story is more nuanced than headlines might suggest.

A FUNDAMENTAL SHIFT IN INVESTMENT INCENTIVES

Michelle Ciesielski, National Head of Research at McGrath Estate Agents, says the reforms represent a significant change in the way Australians will approach property investment.

"The Australian Government's recent Federal Budget has delivered the most significant changes to property investment in a generation.”

"Together, these measures are reshaping where investors see value and encouraging some Australians to broaden their horizons beyond the local market."

Negative gearing has long been one of Australia's defining investment incentives, allowing investors to claim tax deductions when rental expenses exceed rental income. Restricting that benefit to newly built homes fundamentally changes the economics of buying established investment properties.

At the same time, reducing the capital gains tax discount lowers the after-tax returns investors receive when selling property, particularly those who have traditionally relied on long-term capital growth.

According to Ciesielski, the reforms are designed to redirect investment rather than discourage it altogether. "Whilst the reforms are designed to improve affordability and direct more capital towards new housing supply, they also reduce some of the traditional tax advantages that have underpinned Australian property investment for decades.”

"A growing number of investors are now exploring overseas markets such as New Zealand as a result, where they may find different taxation settings, lower entry prices in some locations and new opportunities for portfolio diversification."

NOT ALL TAX CHANGES CARRY EQUAL WEIGHT

Although the reforms are extensive, not every measure is expected to influence investor behaviour equally. Ciesielski believes the greatest focus remains on the changes that directly affect long-term returns.

"Investors are focused on the changes to negative gearing and capital gains tax because they directly affect investment returns and future wealth generation.”

"While existing owners are largely protected through grandfathering provisions, future investors now face a very different landscape when assessing their property strategies."

That protection for existing investors is an important distinction.

Because many current property owners retain their existing tax treatment, the reforms are unlikely to trigger widespread selling or dramatic price corrections. Instead, they're expected to gradually reshape future investment decisions.

INVESTORS BEGIN LOOKING ACROSS THE TASMAN

While the policy changes are still relatively new, Bayleys has already observed a noticeable lift in Australian interest.

Head of Insights and Data Chris Farhi says enquiries and transactions originating from Australia have increased significantly during 2026.

"We've seen enquiries and transactions from Australians double during 2026 compared to the same time in 2025, and a lot of that has occurred over the past couple of months around the time the tax changes were introduced.”

However, Farhi is quick to point out that attributing all of that activity solely to the tax reforms would oversimplify what's happening.

"There are a range of buyers sitting within those numbers. Some are holiday home purchasers, others are New Zealanders thinking about returning home, while broader economic conditions in Australia have also softened slightly, making New Zealand look comparatively more attractive than it may have previously."

He says rather than signalling a rush of Australian investors into New Zealand, the data reflects several factors converging at once.

New Zealand presents several characteristics that naturally appeal to Australian buyers today.

The local housing market remains much earlier in its recovery cycle than Australia's, offering opportunities that many investors see as unavailable at home.

Farhi says timing is an important consideration.

"New Zealand is still yet to move into a proper housing market recovery, which means we're sitting much closer to the bottom of our property cycle while Australia appears much closer to its peak.”

The relative strength of the Australian dollar also improves purchasing power for Australian-based buyers.

But Farhi cautions against viewing tax changes as the primary reason New Zealand has become attractive.

"Those factors have existed for the past couple of years. They're not a direct result of the Australian tax changes.”

While enquiry is spread across both islands, certain regions are attracting more Australian attention than others.

Farhi says the South Island has been particularly prominent.

"Queenstown Lakes has seen strong enquiry, likely reflecting buyers looking for a combination of lifestyle and investment. Christchurch is also attracting attention thanks to its strong underlying economy," he says.

That pattern suggests many purchasers are motivated by more than financial returns alone.

Lifestyle, family connections and the appeal of owning property in New Zealand remain powerful drivers.

OPPORTUNITY STILL REQUIRES DUE DILIGENCE

For Australians considering New Zealand, understanding local regulations remains essential.

Farhi says rental standards, tenancy legislation and Healthy Homes requirements differ significantly from Australia and should be understood before purchasing.

"Anyone looking at buying an investment property here should speak with a property manager early in the process, so they understand New Zealand's requirements before they buy."

A TIDAL WAVE OF INVESTORS?

Some commentary has suggested Australia could become a major new source of demand for New Zealand property.

But Farhi believes that's overstating the likely impact.

"The tax changes are unlikely to trigger a tidal wave of Australian buyers.”

One reason is that New Zealand already operates under some similar investment rules.

"We already have policies around ring-fencing investment losses, so while Australia's negative gearing changes are significant for their market, investors aren't moving into a completely different tax environment by coming here."

There's also a practical reality too.

Property investors typically favour markets they know well. They understand local pricing, tenancy regulations, planning rules and neighbourhood dynamics. Crossing international borders introduces unfamiliar legislation, different lending conditions and additional management considerations.

"It's a pretty significant mindset shift for someone who's always invested in Australian property to suddenly decide to buy in New Zealand.”

AUSTRALIA'S MARKET IS CHANGING TOO

The reforms are also expected to influence investor behaviour within Australia over the next one to two years. Ciesielski says investors are likely to become more selective.

"Combined with the three interest rate rises already delivered in 2026, the changes are likely to soften investor demand for established homes whilst increasing interest in new housing and other investment opportunities."

She does not expect widespread price falls.

"The reforms are unlikely to trigger a sharp correction in house prices given existing investors are largely protected through grandfathering provisions. However, we could see prices moderate in some markets from reduced competition from future investors, particularly in areas where investors have traditionally been very active."

Over time, she expects capital to increasingly flow toward new developments as governments attempt to stimulate additional housing supply.

Yet bringing those projects to market remains difficult.

"Developers across Australia want to build, but they are facing a perfect storm of higher construction costs, labour shortages, planning delays, increased taxes and elevated financing costs, all of which are placing pressure on project feasibility.”

LOOKING BEYOND THE HEADLINES

The Australian tax reforms represent a meaningful shift in one of the world's largest residential property markets.

They will almost certainly change where Australian investors choose to place future capital, encourage greater consideration of new housing and prompt some to diversify internationally.

New Zealand is likely to benefit from some of that renewed interest, but ultimately the increase is expected to be measured rather than dramatic.

As Farhi notes, many of today's Australian buyers are already New Zealanders living overseas, returning to a market they know well rather than discovering it for the first time.

"The migration of New Zealanders to Australia appears to have plateaued and may even begin reversing. If that happens, we'll likely continue seeing more activity from Australian-based buyers, many of whom are simply returning Kiwis reconnecting with the New Zealand market."

Because of that, the biggest story may not be a flood of Australian investors crossing the Tasman, but a subtle rebalancing of investment decisions as changing tax settings encourage people to reassess where opportunity lies.

To stay informed on the trends shaping New Zealand's property market, explore the latest Bayleys insights and browse properties for sale across New Zealand.